Business context and reporting period
KB Financial Group Inc. filed this Form 20-F on April 27, 2022, reporting on the fiscal year ended December 31, 2021. The consolidated financial statements are prepared under IFRS as issued by the IASB; amounts below are in Korean won (₩) unless stated otherwise. KB is a Korean financial holding company with banking, credit-card, securities, insurance, consumer-finance and asset-management businesses.
Key financial metrics
| Metric | FY 2021 / year-end | Comparable period |
|---|---|---|
| Net operating revenue | ₩14.484 trillion | ₩12.493 trillion in 2020; up 15.9% |
| Net interest income | ₩11.230 trillion | ₩9.722 trillion in 2020; up 15.5% |
| Profit for the year, consolidated | ₩4.384 trillion | ₩3.516 trillion in 2020; up 24.7% |
| Profit attributable to parent shareholders | ₩4.410 trillion | ₩3.468 trillion in 2020 |
| Net interest margin / spread | 2.07% / 1.97% | 1.99% / 1.86% in 2020 |
| Efficiency ratio | 49.72% | 54.56% in 2020 |
| Total assets / equity | ₩663.9 trillion / ₩48.3 trillion | ₩610.7 trillion / ₩43.4 trillion in 2020 |
| Gross loans / deposits | ₩421.6 trillion / ₩372.0 trillion | ₩380.5 trillion / ₩338.6 trillion in 2020 |
| Borrowings / debentures | ₩56.9 trillion / ₩67.4 trillion | ₩49.8 trillion / ₩62.8 trillion in 2020 |
| Non-performing loans | ₩1.458 trillion; 0.35% of loans | ₩1.108 trillion; 0.29% in 2020 |
| Allowance for credit losses | ₩3.685 trillion; 0.87% of gross loans | ₩3.283 trillion; 0.86% in 2020 |
| Group capital ratios | CET1 13.46%; Tier 1 14.54%; total 15.77% | CET1 13.30%; Tier 1 14.06%; total 15.28% in 2020 |
| Cash and cash equivalents | ₩9.108 trillion | ₩8.685 trillion at 2020 year-end |
Net cash flow was an outflow of ₩6.700 trillion from operating activities and ₩3.856 trillion from investing activities, offset by ₩10.821 trillion of financing inflows. These cash flows reflect banking activity, including substantial loan growth and deposit funding, and should not be read like cash flows for a non-financial company. The filing reports 2021 dividends of ₩2,940 per common share, including an interim dividend; the ₩2,190 final dividend was approved in March 2022.
Material changes versus 2020
- Profit increased as net interest income grew 15.5%, supported by loan growth and lower funding costs. Net interest margin recovered from 1.99% to 2.07% after falling in 2020.
- Gross loans grew 10.8%; domestic corporate lending and foreign loans expanded. Non-performing loans rose to 0.35% of loans from 0.29%, although the combined ratio of non-performing and other impaired loans declined from 0.90% to 0.83%.
- Provision for credit losses rose 13.6% to ₩1.185 trillion, reflecting precautionary COVID-related provisioning and loan growth; the filing also cites improving retail asset quality.
- Net fee and commission income increased 22.5% to ₩3.626 trillion. Net insurance income rose to ₩557 billion from ₩300 billion, partly reflecting a full year of Prudential Life Insurance consolidation.
- General and administrative expenses increased 5.7% to ₩7.201 trillion, slower than revenue growth. The efficiency ratio improved by 4.84 percentage points.
- Net gains on financial instruments at fair value through profit or loss were nearly flat at ₩995 billion. Derivative trading revenue fell to ₩204 billion from ₩323 billion in 2020 and ₩1.116 trillion in 2019.
Outlook, management commentary, risks and unusual items
The filing does not provide numerical earnings guidance. Management describes the Korean and global economic outlook as uncertain. Its stated priorities include maintaining asset quality and capital, expanding fee income, developing digital and overseas businesses, and pursuing cross-selling and subsidiary synergies. KB acquired the remaining 30% of Cambodian PRASAC in October 2021, bringing ownership to 100%; it also plans to merge Prudential Life Insurance and KB Life Insurance by January 2023, with details not finalized as of filing.
- Credit and macroeconomic risks: COVID-19, high household debt, rising interest rates, property-price declines, unemployment and government-directed borrower relief could affect repayment capacity, provisions and margins. Retail loans represented 45.5% of total lending; loans to SMEs reached ₩138.6 trillion.
- Liquidity and capital: About 97.1% of deposits had maturities of one year or less or were payable on demand. December 2021 average liquidity coverage ratios were 92.55% in won and 108.09% in foreign currency; temporary regulatory minimums were 85% and 70%, respectively. The won ratio was below the usual 100% requirement, although above the temporary floor then in effect.
- Other material exposures: Risks include competition from digital banks and fintechs, interest-rate and foreign-exchange volatility, securities valuation, collateral realization, cyber incidents, legal and regulatory changes, and Korean geopolitical and economic conditions. Insurance subsidiaries also face reserve adequacy and future solvency-regime risks.
- Unusual items: 2020 included a ₩145 billion bargain-purchase gain from the Prudential Life Insurance acquisition that did not recur in 2021. 2021 included higher losses on disposal of securities measured through other comprehensive income. The 2019 comparative was retrospectively adjusted for an IFRIC agenda decision on attributing retirement benefits to service periods.
- Contingencies: Litigation includes a Kookmin Bank matter related to Madoff-linked Fairfield redemptions of approximately US$42 million and Australian investment-fund litigation against KB Securities seeking ₩135 billion. The filing says outcomes are uncertain. It reports 264 pending lawsuits against the Group as defendant, with claimed damages of ₩533.6 billion; this is not a stated estimate of probable loss.
KPMG Samjong issued unqualified opinions on the 2021 and 2020 consolidated financial statements and on internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2021.
Most important facts an investor should verify
- Reconcile consolidated profit of ₩4.384 trillion with parent-attributable profit of ₩4.410 trillion and review the full audited statements and segment eliminations.
- Assess whether the rise in non-performing loans and provisions, particularly the increase in foreign non-performing loans, signals emerging credit deterioration beyond reported ratios.
- Confirm the liquidity ratio’s regulatory treatment and subsequent phase-out timetable for temporary COVID-era relief; review deposit concentration, maturities and available unencumbered liquidity.
- Review capital headroom against applicable buffers, dividend capacity at the holding company, and the impact of dividends and hybrid securities on capital.
- Track actual losses, recoveries and any provisions related to the disclosed litigation, restructuring exposures and borrower-support programs.
- Evaluate the implementation, capital and reported-results effects of IFRS 17 and Korea’s planned insurance solvency regime, as well as the proposed life-insurance merger.
- Note that the filing reports 389,634,335 outstanding shares at year-end, while 415,807,920 shares were issued and 26,173,585 were treasury shares; 3,455,426 treasury shares were retired in February 2022.